SEC EB Case No. 07-20-385CAPITAL MARKETS INTEGRITY CORPORATION, Appellant, v. F. YAP SECURITIES, INC., Appellee.

Securities and Exchange Commission Republic of the Philippines Commission En Banc Department of Finance

F. YAP SECURITIES, INC.

Appellant.

-versus-

SEC En Banc Case No. 07-20-385

INTEGRITY CORPORATION, CAPITAL MARKETS Appellee.

DECISION

was subsequently affirmed by the Board of Directors of Appellee, the Capital Markets Integrity Corporation, in a Resolution dated 16 June 2020 (the "Assailed Resolution"). 2020 filed by Appellant F. Yap Securities, Inc. (the "Appeal") praying for the reversal and the setting aside of the Resolution dated 21 February 2020, which Before this Commission is the Memorandum of Appeal dated 30 June

THE PARTIES

8747 Paseo de Roxas, Makati City. Stock Exchange (PSE). Its principal office is at the 17/F Lepanto Building, and existing under the laws of the Republic of the Philippines,and is a Trading Participant as defined under the Securities Regulation Code (SRC duly licensed to conduct business as a broker/dealer of securities in the Philippine F. Yap Securities, Inc. (the "Appellant) is a corporation duly organized

that trade participants comply with applicable rules and regulations. Its principal office is at the 10/F PSE Tower, 5th Avenue corner 28th Street, regulatory organization (SRO) duly organized and existing under the laws of the Republic of the Philippines whose mandate is to maintain the integrity of the capital market and minimize the risk of the investing public by ensuring Bonifacio Global City, Taguig City. The Capital Markets Integrity Corporation (the Appellee) is a self

RELEVANT FACTS

shareholders.1 Yapster secured a license as a broker in securities from the registered with the Commission, with Appellant and related parties as its On 18 May 2000,Yapster E-Trade, Inc.(Yapster was organized and

Par. 12 of the Appeal

F. Yap Securities, Inc Capital Markets Integrity Corporation SEC En Banc Case No.07-20-385 Page 2 of 11 DECISION versus

Commission. On the same date, Appellant and Yapster executed an Exclusive Agreement where they established and operated the first online platform in the country, and where Yapster became the sole and exclusive online arm of Appellant.3

the forms that have been reviewed by Yapster, and thereafter assigns the however returned to Yapster for maintenance and safekeeping only for and on traditional clients who manually signed-up with it, and to online clients who traditional and online. As regards its online clients, Appellant finally approves respective PSE-issued TC codes. The documents of the online clients are behalf of Appellant.4 were referred to Yapster. Appellant maintains the TC codes of all its clients, As a licensed broker/dealer, Appellant subsequently catered to both

Revised Commission Agreement (the Commission Agreement where therefore not passed on to the online clients. allegedly understood as"per stock transaction per day. The said amount was paid by Yapster internally to offset administrative costs of Appellant, and was Appellant charged Yapster the amount of P20.00 per trade which was On 10 April 2008, Appellant and Yapster entered into and executed a

backroom codes, and (b charged Yapster a flat commission of P20.00 per trade.s Compliance Department of Appellee conducted its annual regulatory nine hundred ninety-two (992) unique TC codes that did not have matching examination of Appellant's books and records covering the period of 01 June 2018 until 31 May 2018, and noted that Appellant (a) executed trades using On different dates covering July and August 2019, the Audit and

2015 SRC Rules (the "Relevant Rules). Appellant to explain why it should not be held liable for violating (a) Article XV(1) of the Implementing Guidelines of the Revised Trading Rules,and (b) PSE Memo Nos. 2008-0467 and 2016-0083 in relation to Rule 30.2.5.2 of the On 24 October 2019, Appellee issued a show cause letter directing

all their transactions pass through Appellant's Flexitrade System, and (b) written explanation on 30 October 2019, therein stating/explaining that (a) the list of TC codes with no matching backroom codes are clients of Yapster as In response to Appellee's show cause letter, Appellee submitted its

3 Par. 13 of the Appeal 5 Par. 4 of the Comment dated 28 July 2020 2 Par. 14 of the Appeal 4 Par. 16 of the Appeal

Capital Markets Integrity Corporation SEC En Banc Case No. 07-20-385 F. Yap Securities, Inc. Page 3 of 11 DECISION -versus-

Appellant has an existing agreement with Yapster which is the basis of the P20.00 commission per stock per day.

the same was devoid of merit. This led to the filing of the instant Appeal. dated 21 February 2020 finding Appellant to have violated the Relevant Rules and imposed upon the latter the sanctions provided in Article XII of the CMIC Rules. The request for reconsideration filed by Appellant on 10 March 2020 was denied by Appellee in a Resolution dated 16 June 2020 after finding that attended by representatives of Appellant,Appellee then issued its Resolution After the conduct of an exit conference on 10 April 2020 which was

resulted in the adjustment of the deadline for the payment of the fines to 9 July immediately executory notwithstanding the filing of the Appeal with the week within which to pay the fines, which request was noted by Appellee and 2020. obligation to pay the fines imposed in the Assailed Decision which was Commission.Appellant however In its letter dated 1 July 2020, Appellee informed Appellant of its requested for an extended period of one (1)

the Urgent Motion) to enjoin the execution of the Assailed Resolution with the Commission a Very Urgent Motion for the Issuance of a Stay Order On 7 July 2020, and during the pendency of the Appeal, Appellant filed

Urgent Motion and enjoining Appellee from executing the Assailed Resolution until the issues in the instant Appeal are resolved. On 9 July 2020, the Commission issued a Resolution granting the

ISSUES

I Did Appellant violate Article XV(1) of the Implementing Guidelines of

I. I. Did Appellant fail to establish and maintain an effective compliance Did Appellant fail to charge the minimum commission rates for its 992 clients? the Revised Trading Rules?

function?

RULING

We find the Appeal meritorious and hereby grants the same.

Appellant substantially complied with the requirement of Article

Capital Markets Integrity Corporation SEC En Banc Case No. 07-20-385 F. Yap Securities, Inc. Page 4 of 11 DECISION -versus-

XV(1) Guidelines of the Revised Trading Rules. oftheImplementing

showed that it was able to immediately submit to Appellee CMIC the excel the same office which houses all its documents, data and information of the Assailed Resolution have TC codes with corresponding accounts in its back office. Appellant alleged that it and Yapster are occupying and holding considering that they are related companies. In support thereof, Appellant file containing the backroom codes covering the 992 TC Codes in its email dated 1 August 2019. In its Appeal, Appellant maintained that the 992 online clients subject

trading codes which was allegedly not substantially proven.8 and Yapster are inter-related, compliance by Yapster does not benefit determinative in the instant case is Appellant's actual designation of the (the Guidelines). In support thereof, Appellee argued that while Appellant Appellant because they are separate entities.7 Moreover, Appellee argued that it was not enough for Appellant to show that the data and the backroom documents are readily available and accessible to it because what is Article XV(1) of the Implementing Guidelines of the Revised Trading Rules Appellee CMIC countered by maintaining that Appellant violated

We find for Appellant.

the provisions of the Revised Trading Rules provides: Article XV(1) of the Guidelines issued by the Exchange to implement

an account existing in their back office." "The TP shall designate a unique trading account code that corresponds to

covered by Section 52.1 of the SRC which embodies the Books and Records Rule, thus: At the outset it should be emphasized that the afore-quoted provision is

papers, books, and other records shall be subject at any time to such transfer agent, clearing agency, securities association, and other self such copies thereof, and make such reports, as the Commission by its rules members, and Others. --52.1. Every registered Exchange, broker or dealer. regulatory organization, and every other person required to register under this Code, shall make, keep and preserve for such periods, records, furnish and regulations may prescribe. Such accounts, correspondence, memoranda, "Section 52. Accounts and Records, Reports, Examination of Exchanges,

Par. 37page 10) of the Appeal; AnnexFof the Appeal 8 Par. 39 of the Comment 7 Pars. 33 and 35 of the Comment dated 28 July 2020

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public interest of for the protection of investors." (Emphasis supplied) reasonable periodic, special or other examinations by representatives of the Commission as the Commission may deem necessary or appropriate in the

should be readily made available and provided to the Commission or the SRO specifically allows Trading Participants,as defined therein, to keep records in whatever form at its principal office subject to the condition that the same when requested, to wit: Relative to the foregoing, Article IX Section 1(a) of the CMIC Rules

of the books and records or any part thereof." (Emphasis supplied) the Exchange trading system may allow to be so made, kept current and maintained), provided that upon request by the Commission, the CMIC, or books and records, the Trading Participant shall promptly and readily provide a comprehensible and certified true printed and/or electronic copy With the prior approval of the Commission and in addition to the computerized and effective recording and accounting system maintained by SRC 28.1(1)(E)(2)(x), a Trading Participant may make, keep current and maintain the books and records required by this Article IX and SRC Rule 52.1 in electronic form and/or medium (including electronic records, which any other party, who may be legally entitled or authorized to access said

Laws. Accordingly, if investors are to be adequately protected, regulators the requirements of, and fully complying with the provisions of the Securities must be able to rely on these records as providing a true account of a Trading Participant's operations. make and maintain records that document their transactions with customers and overall securities operations. The Commission and the SROs review these records to determine and/or ensure that Trading Participants are acting within requiring them to act in a manner that is protective of the interests of their in a financially sound manner, maintain adequate custody of customer assets, and refrain from deceptive and manipulative practices. To monitor compliance with these rules, the Commission requires Trading Participants to Laws aimed at ensuring safe and sound securities markets. Considering that Trading Participants play an essential and critical role in these markets, the Commission has established, approved and implemented rules and regulations customers and other market participants. These rules, along with rules promulgated by the self-regulatory organizations (SROs) which include the Appellee CMIC,seek to ensure that Trading Participants operate,inter alia the SRC, its IRR and other related regulations (collectively, the Securities The Commission has the power and authority to interpret and enforce

transaction they effect and of their securities business in general. These rules impose minimum recordkeeping requirements that are based on standards a preserve in an accessible manner,a comprehensive record of each securities The afore-quoted provisions require Trading Participants to create and

Capital Markets Integrity Corporation SEC En Banc Case No.07-20-385 F.Yap Securities,Inc. Page 6 of 11 DECISION versus-

prudent Trading Participant should follow in the normal course of business. The requirements are an integral part of the investor protection function of the

the primary means of monitoring compliance with Securities Laws, including antifraud provisions and financial responsibility standards. Commission, and other securities regulators, in that the preserved records are

which is also its unifying principle, is the protection of investors, thus: Supreme Court emphasized that the ultimate objective of Securities Laws. In Palanca IV v. RCBC Securities, Inc.(the Palanca Case), the

of the widest participation of ownership in enterprises, enhancement of the protection of investors, ensuring full and fair disclosure about securities, and or manipulative devices and practices that create distortions in the free market, with the unifying principle being the protection of investors. These core principles animate the whole of the SRC: and as such. any doubt or conflict in the interpretation of the SRC and its implementing rules must be resolved in a manner that will carry out the foregoing principles." (Emphasis "It has been observed that the aforequoted provision lays down seven core principles of our securities regulation laws: self-regulation, encouragement democratization of wealth, promotion of capital market development, supplied) minimization, if not total elimination,of insider trading and other fraudulent

examination process, which in turn, relies on the records that Trading that the Commission's regulatory function is undermined to the extent that these records are inaccurate, retained in a non-accessible manner, or capable of alteration. Thus, a failure to maintain accurate, accessible, and true records may lead to situations where a firm cannot account for customer property or Participants are required to make and maintain. It cannot be overemphasized its own assets. For these In relation to the instant Appeal, investor protection depends on the reasons, the recordkeeping requirements are an important part of managing systemic the record-keeping system of radins isk in the industry. Stated otherwise, if Participant substantially complies with the applicable laws. ulations and, more importantly, is

investors will be Case, it was emphasized b immediately accessible prejud is very low.Hence, in the Palanca o the regulator, the risk that public Court that the SRC's overarching principle of investor protectio satisfied if a Trading Participant keeps and maintains its records and acc unts such a way that it is able to "promptly

authorized to access said books and records.10 by the SEC, the CMIC, or any other party who may be legally entitled or electronic copy of the books and records or any part thereof when requested and readily provide a comprehensible and certified true printed and/or

9 G.R.No. 241905,March 11,2020 I0 Ibid

Capital Markets Integrity Corporation SEC En Banc Case No. 07-20-385 F. Yap Securities, Inc. Page 7 of 11 DECISION -versus-

the unique trading account codes for the 992 clients and the data covering the same was readily available and ac was able to immediately submit In the instant case, the records show that Appellant actually designated T ssible to it for which reason, Appellant Appellee. The excel file containing the backroom codes CC 992 TC Codes which was submitted by Appellant in its email da shows Appellant's substantial comp bliance with the letter and intent of the August 2019 is evidence that

afore-quoted provision discussed earlier

custody and care of its books and records, and with its ability to immediately produce and submit records required by regulators which Appellant has shown in the instant case, the Commission finds that Appellant has satisfied and substantially complied with the requirements of the law/regulation. Under the system which Appellant was maintaining in relation to the

for the Commission to evaluate and pass upon Appellant's compliance not necessarily means compliance with the Guidelines and the Rules of the are deemed written into, and should be considered in interpreting the complied with its obligation under the law, it was necessary in the instant case only with the Exchange Guidelines/Rules but also with the SRC and its IRR. This is based on the principle that compliance with SRC and its IRR Exchange. Guidelines issued by the Exchange to implement the provisions of the Revised Trading Rules. Hence, to determine whether the Appellant fulfilled and Moreover, it bears emphasis that the provisions of the SRC and its IRR

it was readily and immediately made available to Appellee. The foregoing ensured that the safeguards established by the law and regulation for the protection of investors were not compromised. TC Codes which was submitted by Appellant in its email dated 1 August 2019 proved that the trading codes issued by the Exchange to Appellant have a corresponding account existing at its back office/main office for which reason, Verily, the excel file containing the backroom codes covering the 992

specifically provides that securities regulations should be interpreted in a manner that ensures that implementation of the objectives of the SRC and its IRR, primordial of which is the protection of investors. The same rule mandates and directs the Commission to resolve any doubt as to the The foregoing is consistent with Rule 2 of the 2015 SRC Rules11 which

manner that would accomplish the following objectives: (i organize a socially-conscious and self-regulating market, (ii encourage wide public ownership of business enterprises, (iii promote the development of the capital market, (iv) protect the investors, (v) ensure full and timely disclosure of material information, and vi minimize, if not eliminate, fraudulent or manipulative devices and practices that create distortions in a free market. 11 Any doubt that may arise in the interpretation of these Rules shall be resolved by the Commission in a

Capital Markets Integrity Corporation SEC En Banc Case No. 07-20-385 F. Yap Securities, Inc. Page 8 of 11 DECISION -versus-

interpretation of any of its provision in a manner that will ensure the accomplishment of the said objective and to assure the investing public that the Philippine capital market is just, fair and transparent.

I. Appellant did not violate

and 2016-0083 in relation to Rule 30.2.5.2 of the 2015 SRC Rules. PSE Memoranda Nos.2008-0467

PSE Memoranda Nos.2008-0467 and 2016-0083 (the PSE Memo) when it charged Yapster a flat commission of P20.00 for every trade executed Appellant allegedly disregarded the Securities Laws which require that commission rates be pegged on the transaction value. Appellee CMIC maintained that by entering into a Commission Agreement. In the Assailed Resolution, CMIC found Appellant to have violated

PSE Memo. In support thereof, Appellant argued that the Online Trading by the PSE12, and that the P20.00 flat rate charged against Yapster pursuant that the commissions charged against the latter are based on rates prescribed to the Commission Agreement was in the nature of an administrative fees.1 Appellee CMIC committed a reversible error in finding that it violated the Agreement which it (through Yapster) executed with its online clients shows In its Appeal, Appellant maintained that Yapster is not its client, hence

minimum commission rules because by charging Yapster a flat rate of comply with the rates prescribed in the PSE Memo notwithstanding the fact that Appellant has already shown that it was already charging its online clients a commission at the rate prescribed under the PSE Memo. P20.00, it failed to comply with the rates prescribed in the PSE Memo. Agreement which the parties intended to be an administrative fee should Appellee is in effect arguing that the rates provided in the Commission In its Comment, Appellee maintained that Appellant FYSI violated the

We do not agree with Appellee.

products which Trading Participants are required to comply with. This commission rates for trade transactions covering equity and equity-related regulation undoubtedly applies to Appellant, being a Trading Participant duly licensed to conduct business as a broker/dealer of securities. PSE Memorandum No. 2008-0467 provides for the minimum

12 Pars.49 and 50 of the Appeal 13Par.52 of the Appeal

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essentially as service business where broker-dealers receive compensation in the form, among others, of commissions At the outset, it should be pointed out that the securities business is X0 r the counter transactions. advisory fees, service charges,from to specific regulations and limitations a variety of activities which are subject Gf ommissions on stock exchange transactions,the PSE Men minimum commission transaction, arrangem AT No.2008-0467 prescribes the deliver execution of the of the securities.

rate schedule applies. seldom charge more than the minimum rate for the services for which the charging higher rates although as a matt and basic research and custodial provides for a minim practical consideration,firms while the said regulation prohibited from

P90.00 which is equivalent to 0.0025 of the transaction value.14 the sales invoice of one of the said clients who was charged a commission of online clients are covered by the Online Trading Agreement which provides for the payment by the latter of commissions at the rates set forth in Annex A thereof. Moreover, in support of its claim that it did not charge its 992 clients a fixed commission rate of P20.00, Appellant submitted in evidence In the instant case, the records show that Appellant's transactions with

complied with PSE Memorandum No.2008-0467.Consequently,Appellee's argument that Appellant's violation of PSE Memorandum No. 2008-0467 consists in its act of charging Yapster a flat rate of P20.00 must therefore fail for lack of merit and basis. On the basis of the foregoing, the Commission finds that Appellant

an absurd situation where the administrative fees and not as commissions. that the P20.00 paid by Yapster was a fixed commission rate would lead to Appellee that the P20.00 paid by Yapster for the subject transactions pursuant to the Commission Agreement was in the nature administrative fees. The absence of any provision relating to compliance with PSE Memorandum No. 2008-0467 or any reference thereto in the Commission Agreement shows the intent of the parties to treat the said amount as clients have already been charged a commission rate based on the transaction value prescribed in PSE Memorandum No. 2008-0467, We agree with Considering that the transaction covering Appellants 992 online same transaction is twice charged with To sustain Appellee's position

commission i.e. the online clients paying the commission at the rate

14 See Annex Cof the Reply dated 12 August 2020

Capital Markets Integrity Corporation SEC En Banc Case No. 07-20-385 F.Yap Securities, Inc Page 10 of 11 DECISION -versus

prescribed in the Online Trading Agreement, and Yapster paying a flat commission rate of P20.00.

services therein as the stockbroker in the buying and selling of the account of its online clients, the latter have agreed to pay the fees and commissions prescribedtherein.15 Considering. will reveal that for and in consideration of Appellant's provision of the Moreover, a careful examination of the Online Trading Agreement Ta9T13e Online Trading Agreement specifically identifies Ap ellan anster as the service providers, it is legally and physical ssib e fo C0 to be a clienl who is obliged therein to PTG the 992 transactions covered by the Online Tradi could not have been charged a flat rate of P20.00 becaus Te a13.s0001t10G1w provides for the rates of commissions as pr escribed oy the rules:neither could Yapster

allegations, unsubstantiated by evidence, are not equivalent to proof.16 the rates prescribed in the Online Trading Agreement because it was not a client who was availing the services of Appellant. More importantly, We note that the records of the case is bereft of evidence that will support CMIC's claim that Appellant charged its clients a flat commission rate and disregarded the rates prescribed in the PSE Memo. It is hornbook law that have been obliged to pay the commissions vering the 992 transactions at

consideration for its use of Appellant's online trading facility. made by Yapster for the same transactions at the rate of P20.00/transaction pursuant to the Commission Agreement could no longer be considered as commissions because the online clients have already paid for it. If at all, such payments were in the nature of administrative fees made by Yapster in governed by the provisions of the Online Trading Agreement, the payment Given that the transactions of the 992 online clients of Appellant were

i.e. Appellant's client; and not those between the Appellant and Yapster. Memorandum No. 2008-0467 which covers an arrangement between a broker/dealer or trading participant i.e.Appellant and the customers or buyers It appears that Appellee misconstrued and misapplied PSE

as Commission Agreement in consideration for the latters use of Appellant's online trading facility cannot be stretched to include an arrangement such as Appellant's clients are privy to the Commission Agreement. Consequently, the P20.00/transaction fees paid by Yapster under the document denominated Moreover, there is also no evidence on record showing that the

15 Par. No. 4 of the Online Trading Agreement 16 Gatan vs Vinarao (G.R. No. 205912, October 18, 2017)

Capital Markets Integrity Corporation SEC En Banc Case No.07-20-385 F. Yap Securities, Inc. Page11 of 11 DECISION -versus-

the one alluded to by the CMIC i.e. the commissions paid by Yapster as an online client.

Memorandum No. 2008-0467, and the P20.00/transaction fee that was paid by Yapster pursuant to the document Agreement was considered by Appellee as administrative fees. auditing the operations of Appellant, the latter has been found to have not committed material violations of the securities laws.17 The fact that the Commission Agreement has already been in effect during the said period can only be construed to mean that Appellant beginning 2012 when Appellee became an SRO and started examining and The Commission also notes that for eight (8) successive years denominated as Commission was compliant with PSE

Memo, the answer to the third issue is readily apparent and need be the Implementing Guidelines of the Revised Trading Rules and the PSE expounded in this decision. Finally, having found that Appellant has not violated Article XV(1) of

Integrity Corporation is REVERSED and SET ASIDE dated 30 June 2020 filed by Appellant F. Yap Securities, Inc. is hereby GRANTED. The Resolution dated 16 June 2020 of the Capital Markets WHEREFORE, premises considered, the Memorandum of Appeal

SO ORDERED.

Pasay City, 07 June 2021.

EMILIO Chairperson XQUINO

EPHYROLUIS B. AMATONG Commissioner JAVEY PAUL D.FRANCISCO Commissioner

KFEVIN LESTER K.LEE Commissioner KARLO(S! BELLO Commissioner

17 Annexes "E to"E-4" of the Appeal